His Name was RICO, He Wore a Diamond: Lawsuits Allege that Coupons and Savings Programs for Brand-Name Drugs Violate RICO, Antitrust Law

Many pharmaceutical companies sponsor prescription drug coupons and other cost-savings programs to help reduce the burden of co-payments and co-insurance. Lawsuits filed against nine pharmaceutical companies in four federal district courts on March 7 by various union health plans allege that the drug-makers violated anti-trust laws and the Racketeer Influenced and Corrupt Organizations Act (“RICO”) when they provided coupon programs to privately-insured consumers that subsidize all or part of the cost-sharing obligation (co-pay or co-insurance) for a branded prescription drug or drugs. (A list of the lawsuits and links to the Complaints are provided at the end of this post.) Cost-sharing obligations for prescription drugs are used by private health care plans in part to encourage plan participants to use lower-cost generics instead of branded drugs. (Most coupons exclude government health care beneficiaries due to the federal health care program antikickback statute.)

According to the plaintiffs, by routinely reducing co-pays through their coupon programs, the corporate defendants in these lawsuits allegedly undermined the cost-sharing arrangements set up by the health plans with their members, and thereby caused the plans to (1) pay higher reimbursements for the subsidized drug than the true cost of the drug; and (2) pay for more brand-name drugs, at higher prices, instead of lower-cost generics. According to the complaint, health care plans have no way of knowing whether a manufacturer’s coupon or savings program has been used to cover the co-pay for a drug covered by the plan, and therefore pay the same reimbursement even though part of the cost of the drug has been subsidized by the manufacturer. The complaints allege that the drug companies’ interference with insurance cost-sharing arrangements violates federal law.

First, the complaints allege that the pharmaceutical companies’ co-pay coupon programs constitute substantive RICO violations and a conspiracy to violate RICO. According to the complaints, the coupons constitute illegal kickbacks amounting to health care fraud under 18 U.S.C. § 1347. Further, the programs allegedly cause false information about drug prices to be submitted to the plaintiff health care plans, which results in the plans reimbursing the original price of the branded prescription drug rather than the lower subsidized price. Since the programs could not be carried out without using the mail and internet, they are alleged repeated violations of 18 U.S.C. § 1341 (mail fraud) and 18 U.S.C. § 1343 (wire fraud). According to the complaints, the pharmaceutical companies acted overtly to carry out this fraud by hiring and forming an enterprise with vendors that administered and arranged for payment of the co-pays to the pharmacies. (The vendors are not named as defendants in the cases.)

Second, the coupon programs allegedly violate 15 U.S.C. § 13(c)’s prohibition on commercial bribery, because they bribe consumers with co-pay/co-insurance subsidies in order to induce them to purchase branded drugs that cost their insurance plans more. According to the complaints, the coupon programs pay off fiduciaries (in this case, consumers) who control purchasing decisions (brand-name versus generic drugs) that are to be paid for by another (the health care plans). These payoffs cause significantly increased expenditures by the health care plans, which end up purchasing more branded prescription drugs.

The complaints seek declaratory judgment, an injunction against current and future coupon and savings programs, attorneys’ fees and costs, and treble damages under 18 U.S.C. § 1964(c) and 15 U.S.C. § 15(a).

It is too soon to tell if these cases will have legs, or if they will be quickly dismissed. It is difficult to characterize the coupon and other cost-savings programs as fraudulent when they are so publicly promoted. Indeed, every time one walks into one’s physician’s office or pharmacy, one sees multiple coupon offers, and the complaints themselves characterize the co-pay subsidies as "open and notorious." But companies should follow the lawsuits to see if they need a course correction in how they handle coupons programs.